Contract Law Study Guide
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- Formation of contract
- and lots more!
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Introduction To Contract Law:
A contract is 'a promise or set of promises which the law will enforce' (Pollock Principles of Contract (13th Edn) 1).
The expression 'contract' may, however, be used to describe any or all of the following:
- that series of promises or acts themselves constituting the contract;
- the document or documents constituting or evidencing that series of promises or acts, or their performance;
- the legal relations resulting from that series.
The Formation of Contracts:
A valid contract requires:
- an agreement;
- an intention to create legal relations; and
- consideration (unless the Contract is made by deed).
Whilst each of these three requirements receives separate treatment, they must in reality be looked at together.
Capacity To Form A Contract:
A valid contract may be made by any person recognised by law as having legal personality, that is natural persons, corporations and the Crown.
However, the following classes of persons are in law incompetent to contract, or are only capable of contracting to a limited extent or in a particular manner:
- persons of unsound mind;
- alien enemies;
- drunkards; corporations;
- partnerships; and
- receivers of companies.
Contents of the Contract:
The terms of a contract may be express or implied; and separate consideration is given below to one particular type of contractual term, namely exclusion clauses. Where a contractual term has been broken, it will, apart from the possible effect of any exclusion clause, probably give rise to a claim for damages for breach of the relevant contract, or of any collateral contract.
Prima facie, the promisor will be strictly liable in the law of contract for failure to perform that which he promised to perform, unless his promise is impossible to perform; and this situation may be contrasted with an action in tort in respect of a broken promise, which will depend on the promisor's state of mind. Furthermore, the breach may in some cases give the promisee the additional right to rescind the relevant contract. Where the contract is one of consumer supply, there are statutory restrictions on the permissible terms.
Privity of Contract:
The doctrine of privity of contract is that, as a general rule, at common law a contract cannot confer rights or impose obligations on strangers to it, that is, persons who are not parties to it. The parties to a contract are those persons who reach agreement and, whilst it may be clear in a simple case who those parties are, it may not be so obvious where there are several contracts, or several parties, or both, for example in the case of multilateral contracts; collateral contracts; irrevocable credits; contracts made on the basis of the memorandum and articles of a company; collective agreements; contracts with unincorporated associations; and mortgage surveys and valuations.
Despite some earlier doubts, in the mid-nineteenth century the doctrine of privity was accepted by the courts, though those doubts seem to have been resurrected in more recent times, albeit by a minority of cases. The privity of contract rule used to be regarded as intimately connected with the doctrine of consideration and the rule that consideration must move from the promisee.
There are situations where the parties have reached agreement but the question arises whether the existence or non-existence of some fact, or the occurrence or non-occurrence of some event, destroys the basis upon which that agreement was reached so that the agreement is discharged or in some other way vitiated. That situation is sometimes described as 'mistake'. However, in utilising that description, the following distinction must be borne in mind: if mistake operates at all in contract, it operates so as to negative or in some cases nullify consent.A mistake negatives consent where, on ordinary offer and acceptance principles, it prevents any agreement coming into in existence. This may be because of a mistake as to the person with whom one is contracting, or as to the subject matter of the contract, or as to the terms of the contract.A mistake nullifies consent where the parties reach agreement, but that agreement may be nullified because that agreement was made under a fundamental mistaken assumption. In this circumstance, the effect of the mistake may differ according to whether the mistake renders the contract impossible to perform or not.
Discharge of Contract:
Contracts are often silent on the position of the parties in the event that something happens subsequent to the formation of a contract which renders its performance literally impossible, or only possible in a very different way from that originally contemplated. The doctrine of frustration operates to excuse from further performance where: (1) it appears from the nature of the contract and the surrounding circumstances that the parties have contracted on the basis that some fundamental thing or state of things will continue to exist, or that some particular person will continue to be available, or that some future event which forms the basis of the contract will take place; and (2) before breach, an event in relation to the matter stipulated in head (1) above renders performance impossible or only possible in a very different way from that contemplated.
In more recent times, five propositions have been set out as the essence of the doctrine.
- the doctrine of frustration has evolved to mitigate the rigour of the common law's insistence on literal performance of absolute promises so as to give effect to the demands of justice, to achieve a just and reasonable result, to do what is reasonable and fair, as an expedient to escape from injustice where such would result from enforcement of a contract in its literal terms after a significant change in circumstances.
- the effect of frustration is to kill the contract and discharge the parties from further liability under it, so that the doctrine cannot be lightly invoked but must be kept within very narrow limits and ought not to be extended.
- the effect of frustration is to bring the contract to an end forthwith, without more and automatically.
- the essence of frustration is that it should not be due to the act or election of the party seeking to rely upon it, but due to some outside event or extraneous change of situation.
- that event must take place without blame or fault on the side of the party seeking to rely upon it; nor does the mere fact that a contract has become more onerous allow such a plea. The mere fact that the parties apparently treated a contract as remaining in force until a late stage in their dispute does not conclusively rule out a plea of frustration.
Remedies for Breach of Contract
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