Overview

Foreword 5

Contents 9

Chapter I: What is a contract? 211 Voluntary agreement 21

2 Legally enforceable 22

3 A definition of the law of contract 22

4 An outline of the rest of the course 22

Chapter II: How does a binding contract come into existence? - Requirements fora valid contract 25

1 Offer and acceptance (agreement) 25

2 Intention to create legal relations 38

3 Clear and Certain Agreement 43

4 Consideration or deed 46

5 Form 68

Chapter III: What is the content of the contract? 711 Express terms and implied terms 71

2 Conditions, terms and warranties 73

3 Interpretation and rectification 74

4 Interpretation of standard form contracts, particularly clauses excluding liability for breach 76

5 Questions 85

Chapter IV: What is the role of third parties? (Privity, agency and assignment) 911 The general rule of privity 91

2 Exceptions to the general rule 93

3 Attempts to impose liabilities on third parties 97

4 Agency 97

5 Assignment 101

6 Questions 105

Chapter V: Factors which make a contract void or voidable 1071 Mistake 107

2 Misrepresentation 127

3 Undue influence and duress 142

4 Illegality and Public Policy 152

5 Capacity 165

8 Overview

Chapter VI: How does a contract come to an end? 171

1 Performance 171

2 Discharge by agreement 177

3 Discharge by breach of contract (acceptance of repudiation) 180

4 Frustration 187

Chapter VII: What remedies are available if a dispute arises out of a contract? 199

1 Remedies for breach of contract 199

2 Restitution and rescission 216

3 Remedies not related to breach 218

4 Questions 219

Literature 223

1 Primary Sources 223

2 Secondary Sources 223

Table of English statutes 226

Table of German statutes 227

Table of cases 228

Index 235

Contents

Foreword 5

Overview 7

Chapter I: What is a contract?21

1 Voluntary agreement 21

2 Legally enforceable 22

3 A definition of the law of contract 22

4 An outline of the rest of the course 22

4.1 The formation of a contract 23

4.2 The contents of the contract 23

4.3 The role of third parties 23

4.4 Factors influencing the validity of a contract 23

4.5 How a contract comes to an end 23

4.6 Contractual remedies 24

Chapter II: How does a binding contract come into existence? -

Requirements for a valid contract25

1 Offer and acceptance (agreement) 25

1.1 Offer 26

1.1.1 The difference between an invitation to treat and an offer 26

1.1.1.1 Generally 26

1.1.1.2 Ordinary advertisements (bilateral contract) 26

1.1.1.3 Display of goods for sale 27

1.1.1.4 Advertisements for reward (unilateral contract) 27

1.1.1.5 Auction sales 28

1.1.2 An offer may be to the world at large, to a group of persons, or to a specific person 28

1.1.3 The offer must be accepted before it ceases to exist 28

1.1.3.1 Revocation 29

1.1.3.2 Lapsing 29

1.1.3.3 Failure of a condition to which the offer is subject 30

1.1.3.4 Rejection 30

10Contents

1.2 Acceptance

1.2.1 Communication of acceptance 30

1.2.1.1 Silence as acceptance 31

1.2.1.2 Conduct as acceptance 31

1.2.1.2.1 Unilateral contracts 31

1.2.1.2.2 Bilateral contracts 32

1.2.2 The purported acceptance may not amount to a counter-offer 32

1.2.3 Acceptance must be unconditional to create a binding contract 33

1.2.4 The battle of the forms 33

1.2.5 Is acceptance possible without knowledge of the offer? 33

1.2.5.1 Cross offers 33

1.2.5.2 Reward posters (unilateral contracts) 33

1.2.6 Where and when does the contract come into existence? - Accepting an offer 34

1.2.7 Revoking a postal acceptance 35

1.2.8 Questions 35

2 Intention to create legal relations 382.1 When is there an intention to create legal relations? 382.2 Rebuttable presumption of intention to be legally bound in commercial relations 39

2.2.1 The parties may expressly exclude the intention to be legally bound by a business

agreement 39

2.2.2 The party alleging lack of intent to be legally bound in commercial relations must

prove it 40

2.3 Presumption of intention not to be bound in social and family arrangements 402.3.1 Husband and wife 41

2.3.2 Agreements between parent and child 41

2.3.3 Other domestic/social arrangements 42

2.4 Questions 42

3 Clear and Certain Agreement 433.1 General rule: agreement must be clear and certain 433.2 A contract may be sufficiently clear and certain even if the essential elements are

not specifically mentioned 44

3.3 An agreement to negotiate: an example of an agreement which is not legallybinding because it is not sufficiently clear and certain 44

3.4 Meaningless terms may be disregarded 453.5 Questions 45

4 Consideration or deed 464.1 Consideration 46

4.1.1 What is consideration? 46

Contents 11

4.1.2 Why English law has the requirement of consideration 47

4.1.3 The practical significance of the requirement of consideration 49

4.1.4 The detailed mles of consideration 49

4.1.4.1 Past consideration is no consideration 49

4.1.4.1.1 The general rule 50

4.1.4.1.2 The common law exception 50

4.1.4.1.3 Statutory exception 51

4.1.4.2 Consideration must move from the promisee 51

4.1.4.3 Consideration must be “sufficient” but need not be “adequate” 52

4.1.4.3.1 The difference between “sufficient” and “adequate” 52

4.1.4.3.2 When is consideration sufficient? 53

4.1.4.4 Fulfilment of an independent duty to a third party can simultaneously be

consideration for the agreement between the parties 53

4.1.4.5 Can fulfilment of a pre-existing duty to the other party (as opposed to a

third party) be consideration for a second contract? 55

4.1.4.5.1 Fulfilment of a public duty imposed by law is generally not

consideration 55

4.1.4.5.2 Fulfilment of an existing contractual duty to the promisor may be

consideration for a second agreement 55

4.1.4.5.2.1 The original rule 55

4.1.4.5.2.2 New developments 57

4.1.5 Relationship of consideration to promissory estoppel 60

4.1.5.1 The meaning of promissory estoppel 60

4.1.5.2 Promissory estoppel is a shield, not a sword 62

4.1.5.3 The clean hands rule 63

4.1.5.4 Summary of the effect of the doctrine of promissory estoppel on the rules of

consideration 64

4.1.6 Possible future reforms of the rules that 1) part payment of a debt is no

consideration and that 2) performance of an existing duty to the promisor is no

consideration 64

4.2 An exception to the requirement of consideration: The deed 65

4.3 Overview 66

4.4 Questions 66

5 Form 68

5.1 General rule: A contract requires no special form to be valid 68

5.2 Exceptions to freedom from form and reasons justifying them 68

5.2.1 Contracts for the disposition of an interest in land 68

5.2.1.1 Requirement that the contract be in writing 69

5.2.1.2 Requirement of a deed 69

12 Contents

5.2.2 Contracts where a specific form is required in the interests of consumer protection 69

5.2.2.1 Requirement of writing 69

5.2.2.2 Requirement that the contract be evidenced in writing 69

5.3 Questions 70

Chapter III: What is the content of the contract? 11

1 Express terms and implied terms 71

1.1 Express terms 71

1.2 Implied terms 72

1.2.1 Terms implied by custom 72

1.2.2 Other terms implied by the courts 72

1.2.3 Terms implied by statute 73

2 Conditions, terms and warranties 73

3 Interpretation and rectification 74

3.1 The parol evidence rule 74

3.1.1 The rule 74

3.1.2 Exception to the parol evidence rule 75

3.2 The objective approach to interpretation 76

4 Interpretation of standard form contracts, particularly clauses excludingliability for breach 76

4.1 Did the parties agree at all that the imposed term should be part of the contract? 78

4.1.1 General 78

4.1.2 S igned document 7 9

4.1.3 Other form of reasonable notice 79

4.1.3.1 Reasonable notice before contracting 79

4.1.3.2 Surprising terms require extra notice 80

4.2 If the parties did agree to include the imposed term in the contract, is it relevant in

the specific circumstances? 81

4.2.1 Construction 81

4.2.2 Can an exclusion clause exclude liability for fundamental breach of contract? 82

4.3 If the parties did agree on the clause and it is relevant to the facts, is it outlawed

by statute? 83

4.3.1 Effect of the Unfair Contract Terms Act 83

4.3.2 Types of contract to which the act applies 83

4.3.3 Examples of when the act applies 84

4.3.3.1 Exclusion clauses which are always ineffective 84

4.3.3.2 Exclusion clauses which are ineffective if unreasonable 84

Contents 13

4.3.4 Situations where the act does not apply 85

4.3.5 Unfair Terms in Consumer Contracts Regulations 1994 (EC Directive 93/13/EC) 85

5 Questions 85

Chapter IV: What is the role of third parties? (Privity, agency andassignment)

91

1 The general rule of privity 91

1.1 Attempts to confer benefits on a third party - Contracts for the benefit of a third

party 91

1.2 Recovery of damages from the promisor (A) by the promisee (B) on behalf of the

third party (X) 92

2 Exceptions to the general rule 932.1 Constructive trust 94

2.2 Statutory exceptions to the rule of privity 94

2.3 Special case by case exceptions 95

2.4 Privity and tort 96

3 Attempts to impose liabilities on third parties 97

4 Agency 97

4.1 General 97

4.2 Position of principal and agent with regard to third parties 97

4.2.1 If the agent is in fact authorised by P to contract with X 98

4.2.1.1 If the agent is authorised and discloses that he is an agent 98

4.2.1.2 If the agent is authorised but does not disclose that he is an agent (the rule

of the undisclosed principal) 98

4.2.2 Where the agent exceeds his authority or had no authority at all 99

4.2.2.1 Where the supposed agent is acting for an unnamed “principal” 99

4.2.2.2 Where the supposed agent is acting in the name of a specific “principal” 99

4.2.2.2.1 Liability of the principal 99

4.2.2.2.2 Liability of the agent 100

4.2.2.2.2.1 Where the agent knew or ought to have known that he had no

authority 100

4.2.2.2.2.2 Where the agent reasonably thought that he had authority 100

4.3 Agency as a way around the rule against contracts for the benefit of third parties 100

5 Assignment 101

5.1 The assignability of contractual rights 101

14 Contents

5.2 Equitable assignment 101

5.2.1 The rule 101

5.2.2 The requirement of consideration for an equitable assignment 102

5.3 Statutory assignment 102

5.4 Rules applying to both statutory and equitable assignment 104

5.4.1 Notice to the debtor 104

5.4.2 The assignee takes subject to equities 104

5.4.3 Certain rights cannot be assigned 104

5.4.4 The assignment of contractual duties (novation) 104

6 Questions 105

Chapter V: Factors which make a contract void or voidable107

1 Mistake 107

1.1 The relationship between English law and German law 107

1.2 The types of mistake 107

1.3 The relationship of mistake to misrepresentation in English law 109

1.4 Mistake in common law and equity 109

1.5 The possible remedies in cases of mistake 110

1.6 The situations in which the various remedies are available 111

1.6.1 Mutual mistake 111

1.6.1.1 Effect at common law 111

1.6.1.2 Effect in equity 111

1.6.2 Common mistake 112

1.6.2.1 Common mistake at common law 112

1.6.2.1.1 Mistake as to the existence of the subject matter (res extincta) 112

1.6.2.1.2 Is mistake as to a fundamental quality of the subject matter

operative? 113

1.6.2.1.3 The mistake must be reasonable 115

1.6.2.2 Common mistake in equity 115

1.6.2.2.1 Specific performance 115

1.6.2.2.2 Refusal of specific performance 116

1.6.2.23 Rescission 116

1.6.2.2.4 Rescission in Terms 116

1.6.2.2.5 Rectification 118

1.6.3 Unilateral mistake 120

1.6.3.1 Effect at common law 120

1.6.3.1.1 Mistake as to the identity of the other party 120

1.6.3.1.2 Unilateral mistake as to the terms of the contract - A divergence

from the objective principle? 122

Contents 15

1.6.3.2 Effect in equity 124

1.6.4 Mistake as to the nature of the document in question - Non est factum 124

1.7 Questions 125

2 Misrepresentation 127

2.1 Types of misrepresentation: The state of mind of the person making the

misrepresentation 127

2.1.1 Fraudulent misrepresentation 127

2.1.2 Negligent misrepresentation 128

2.1.3 Innocent misrepresentation 128

2.2 The requirements for an actionable misrepresentation in detail 129

2.2.1 False statement of fact 129

2.2.1.1 General 129

2.2.1.2 Statements of opinion or intention 129

2.2.1.3 A mere puff 130

2.2.1.4 Silence as misrepresentation 130

2.2.1.4.1 No general duty to share information with the other party 130

2.2.1.4.2 Exceptions to the general rule 130

2.2.1.4.2.1 Contracts uberrimae fidei 130

2.2.1.4.2.2 Duty to disclose arising from prior statements 131

2.2.1.5 Misrepresentation by prior conduct 131

2.2.2 The statement must be made by the other party to the contract 132

2.2.3 Inducement (subjective requirement) 132

2.2.4 Materiality (objective requirement) 132

2.3 Remedies for misrepresentation 133

2.3.1 Generally 133

2.3.2 Relationship to other aspects of the law of contract 134

2.3.3 Can the plaintiff base his action on misrepresentation if the misrepresentation has

become a term of the contract? 134

2.3.4 Rescission 134

2.3.4.1 Generally 134

2.3.4.2 Damages instead of rescission 135

2.3.4.3 Factors which may prevent a claim for rescission 137

2.3.4.3.1 Inability to make restitution ( restitutio in integrum) 137

2.3.4.3.2 Loss of the right to rescind due to lapse of time or affirmation of the

contract 137

2.3.5 Damages 138

2.3.5.1 Damages for fraudulent misrepresentation 138

23.5.2 For negligent misrepresentation 138

2.3.5.3 For innocent misrepresentation 139

2.3.6 An overview of the remedies for misrepresentation 140

16Contents

2.4 Questions

3 Undue influence and duress 142

3.1 Duress 143

3.1.1 Threat or use of force 143

3.1.1.1 The original common law position - threat or infliction of personal injury 143

3.1.1.2 Threat or use of force against a third party 143

3.1.1.3 Threat or use of force by a third party 143

3.1.1.4 The new idea of economic duress 143

3.1.2 Illegitimate 145

3.1.3 Causation 147

3.1.4 Effect of duress 147

3.2 Undue influence 147

3.2.1 Influence 148

3.2.2 Improper exploitation 148

3.2.2.1 Where influence has been directly used 148

3.2.2.2 Where influence has not been directly used 149

3.2.3 Causation 149

3.2.4 Effect of undue influence 149

3.2.5 Doctrine of inequality of bargaining power 149

3.3 Questions 150

4 Illegality and Public Policy 152

4.1 Situations in which a contract may be illegal or contrary to public policy 152

4.1.1 Inherent illegality and illegality of the purpose or manner of performance 152

4.1.2 Contracts illegal by statute 153

4.1.3 Contracts void at common law because illegal or contrary to public policy 153

4.1.3.1 Contract to commit a crime or tort 154

4.1.3.2 Wagering and gaming contracts 154

4.1.3.3 Contracts to impede the course of justice 154

4.1.3.4 Contracts to oust the jurisdiction of the courts (ouster clauses) 155

4.1.3.4.1 Common law 155

4.1.3.4.2 Arbitration Act 155

4.1.3.5 Contracts for maintenance or champerty 155

4.1.3.6 Contracts prejudicial to the institution of marriage 156

4.1.3.7 Contracts to promote sexual immorality 156

4.2 Contracts in restraint of trade 156

4.2.1 Between employer/employee, and between buyer/seller of a business 157

4.2.2 Exclusive dealing agreements 158

4.2.3 Restrictive trade agreements 159

Contents 17

4.3 Effect of illegality on contractual remedies 159

4.3.1 Where one of the parties attempts to sue on the illegal contract 159

4.3.1.1 Factors relating specifically to statutory prohibitions 160

4.3.1.2 Factors relevant to deciding the effect of illegality generally 160

4.3.1.3 Severance 161

4.3.2 Where one of the parties attempts to recover performance made under the illegal

contract (restitution) 162

4.4 Questions 163

5 Capacity 165

5.1 Minor’s contracts 165

5.1.1 General rule 166

5.1.2 Automatically enforceable against the minor 166

5.1.2.1 Necessaries 166

5.1.2.2 Beneficial contracts of service or apprenticeship 166

5.1.3 Contracts which are initially binding on the minor but which are voidable at his

instance 167

5.1.4 Restitution 168

5.1.5 The invalidity of the minor’s contract cannot be overcome by suing him in tort 168

5.2 Contracts entered into by mentally disordered or intoxicated persons 168

5.2.1 Necessaries 168

5.2.2 Contracts for other goods 169

5.3 Questions 169

Chapter VI: How does a contract come to an end?171

1 Performance 171

1.1 Rule: Performance must correspond exactly to the obligation 171

1.1.1 Generally 171

1.1.2 Time of performance 172

1.2 Exceptions to the general requirement of exact performance 173

1.2.1 Severable obligations 173

1.2.2 Substantial performance 174

1.2.3 Acceptance of partial performance 175

1.2.4 Prevention of performance by the other party 175

1.2.5 Refusal of performance tendered 176

1.2.6 Restraint of princes 176

1.3 Questions 177

18Contents

2 Discharge by agreement 1772.1 Requirements for discharge by agreement 178

2.1.1 Formalities 178

2.1.2 Other requirements 178

2.2 Situations in which discharge by agreement may arise 179

2.2.1 Compromise agreement to avoid litigation 179

2.2.2 Express provision in the contract 179

2.3 Variation of a contract as opposed to discharge 1792.4 Question 180

3 Discharge by breach of contract (acceptance of repudiation) 1803.1 Types of breach 181

3.1.1 Conditions, warranties and intermediate terms 181

3.1.2 Anticipatory breach 182

3.2 What can the innocent party do if there is a fundamental breach (breach ofcondition or breach of intermediate term leading to serious consequences)? 183

3.2.1 Treat the contract as discharged and sue for damages 183 —

3.2.2 Uphold the contract 184

3.2.2.1 Wait for the other party to perform 184

3.2.2.1.1 The possibility of discharge by frustration after the opportunity to

rescind and sue for breach has been rejected 184

3.2.2.1.2 The possibility of discharge by A’s breach after A has initially

rejected the opportunity to rescind and sue for B ’s earlier breach. 185

3.2.2.2 Perform and sue for the price 185

3.2.2.3 Sue for specific performance 1863.3 Questions 186

4 Frustration 1874.1 Introduction - Origins and theoretical basis 187

4.1.1 Definition 187

4.1.2 Purpose of the doctrine 187

4.1.3 The theoretical basis of the doctrine 188

4.2 Elements of the test for frustration 189

4.2.1 Supervening event 189

4.2.2 Not the fault of the party relying on frustration 189

4.2.2.1 Deliberate inducement 189

4.2.2.2 Negligent inducement 190

4.2.3 Not adequately provided for in the contract - the effect of foresight of the

fmstrating event 190

4.2.3.1 Provision in the contract 190

4.2.3.2 Foresight of the frustrating event 190

Contents 19

4.2.4 Radical change in circumstances 191

4.3 Instances of where frustration occurs 192

4.3.1 Illegality 192

4.3.2 Impossibility 192

4.3.3 Delay 193

4.3.4 Death or illness 193

4.3.5 Failure of source 193

4.3.6 Cancellation of an expected event 194

4.3.7 Where frustration does not apply: Method of performance impossible 194

4.4 Effect of Frustration 195

4.5 Questions 197

Chapter VII: What remedies are available if a dispute arises out of acontract? 199

1 Remedies for breach of contract 199

1.1 The relationship between English and German law 199

1.2 Damages for breach of contract 200

1.2.1 Should the plaintiff be awarded damages at all? 201

1.2.1.1 Generally 201

1.2.1.2 Remoteness of damage 202

1.2.1.2.1 The foreseeability of the harm 202

1.2.1.2.2 The degree of probability foreseen 204

1.2.2 How much should the plaintiff be awarded? - Measure of damages 206

1.2.2.1 Generally 206

1.2.2.2 The time at which damages are to be calculated 208

1.2.2.3 Speculative loss 209

1.2.2.4 Duty to take reasonable steps to mitigate loss 210

1.2.2.5 Liquidated (agreed) damages or unenforceable penalty? 211

1.3 Other remedies for breach of contract 213

1.3.1 Specific performance, payment of a sum of money and injunctions 213

1.3.1.1 Specific Performance 213

1.3.1.2 Payment of money promised (an agreed sum) 214

1.3.1.3 Injunctions 214

1.3.2 Forfeiture of a deposit 215

2 Restitution and rescission 216

2.1 Generally 216

2.2 Notes on rescission 216

20 Contents

2.3 Note on restitution 217

2.3.1 Recovery of money paid 217

2.3.2 Quantum meruit 218

3 Remedies not related to breach 218

3.1 Rectification 219

3.2 Damages for misrepresentation 219

4 Questions 219

Literature 223

1 Primary Sources 223

1.1 Statutes 223

1.2 Law Reports 223

2 Secondary Sources 223

2.1 Textbooks 223

2.2 Advanced Textbooks and Reference Works 224

2.3 Comparative Law 224

2.4 Casebooks and Sourcebooks 224

2.5 Questions and Answers 225

Table of English statutes 226

Table of German statutes 227

Table of cases 228

Index235